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GST: A recipe for economic disaster

Posted: 03 Jun 2013 01:59 PM PDT

To stop fiscal policy disaster caused by GST, the government merely need to stop spending, taxing, inflating and interfering in the market economy

By Medecci Lineil, FMT

One of the great and striking facts of recent weeks is the growing resistance to further taxes on the part of the long suffering Malaysian public famously known as Good and Services tax (GST) or Value Added Tax (VAT).

This article hopefully will represent an Austrian economics analysis which is based on logic and praxeology (human action).

Unlike the market economy, only government acquires its income by coercive imposition of taxes. Refuse to pay your taxes and you will be thrown in jail. Where the government is there is the power to tax, for they cannot rule without taxation.

As Ludwig von Mises wrote in Human Action "The funds that a government spends for whatever purposes are levied by taxation" Or as Murray Rothbard put it in Man, Economy and State "…all state actions rest on the fundamental binary intervention of taxes…"

We have too many government activities, too much bureaucracy, too many elective officers, too many ballots, too many politicians, too many laws and too many elections. From these alone I can see the growth of government at the expense of others for their own benefit.

Every income, every activity, every piece of property and every person in Malaysia is subject to a package of taxation, direct and indirect, visible and invisible.

Probably Malaysians do not realise that government has done a wonderful public relation job. They call you the taxpayers, not victims and the taxes are somehow collected, not stolen.

Taxes are also called contributions, as if it had been a matter of free choice. I rather would regard my action to donate some money to my church every Sunday as free choice. And when there are the attacks on tax "loopholes" or "avoidance" when you are allowed to keep some of your own money. As Mises said, "it is through these loopholes that capitalism breathes."

Taxation is the wealth destruction that we are subjected to all year long.

In regard of GST, I feel sad though when the taxpayers "victims" easily become angry with the GST proposal for the wrong reason – they simply hate the ruling Barisan Nasional, that's it. They still love the brutal government and coercive taxation.

At capitalism camp, we have a different view. Nobody really likes paying their taxes. You have a right to what you earn and keep what you earn. Some of them want lower taxes but I believe most of them want no taxes. Real democracy comes with voluntary action not force and coercive action.

The politicians blab about spending cuts, tax cuts, fighting corruption and leakages but it is all lying propaganda in return of GST implementation.

For me, the spending and tax cut debate is more about politics than serious economics. Some say these will raise revenues by increasing economic activities thus providing government with even more money to spend.

Nothing escapes tax

Some say mega projects should be halted and free corruption before the implementation of GST. Others say lowering taxes and spending cut will simply lower revenues and increase deficits. One thing certain is the ability of government to reach in and openly extract funds from everyone's income has reached its political limit in Malaysia.

The GST is essentially a consumption tax, a tax on the value added by each firm and business imposed on goods and services produced and sold and purchased by consumers. It is levied at each step of the way in the production process: on the farmer, manufacturer, jobber and wholesaler.

Essentially, every time a producer of goods purchases raw materials, he must pay a percentage tax. When the producer sells his goods to a wholesaler, the wholesaler pays another percentage.

The GST makes every businessman an agent of Lembaga Hasil Dalam Negeri (LHDN). In the end the higher cost of goods is passed down to consumers. So the tax is more politically efficient and insidious.

The only difference is that, before this your dissatisfaction rises and point the finger directly at the politicians in government but now you point the finger at the businessmen and trade unions.

Consumers blame the businessmen for inflation while government escapes the blame and join in to denouncing all of these businessmen for causing inflation. As a result, capitalism again has turned into a dirty practise.

From the perspective of the government, this is a near perfect tax and a revenue generating machine, I believe unmatched by any other form of taxation. Nothing escapes the tax.

It touches every stage in every process from new homes to haircuts and allows the government to keep track of every business's buying and selling. They want to manage the details of business which is impossible.

The GST is a rare and heinous type of government policy that attacks the structure of production; they also attack the time preference rates. When we speak of structure of production, we also must refer to type of goods in production, how they are valued and used, and more important time consuming roundabout method of production for creation of a product.

Every good in a structure of production takes time and involves different sets of individual's role. For how long a period (roundabout) of production is limited by time preference rates. Put another way, the GST has the ability to increase in real terms the prices of every good produced and sold.

Each step of each productive process with each subjective value of good becomes less efficient and in this manner, the GST necessarily decreases the material standard of living for all of a nation's consumers.

Goods are viewed as heterogeneous instead of homogeneous. It means that different goods have varying physical features, uses and attributes to every unique individual.

Products like automobiles, laptops, LCD televisions, furniture that result in consumer goods valued much more highly by consumers than the raw inputs. These products are involved in long roundabout in which businesses and entrepreneurs tend to heavily invest capital and labour. Austrian economics recognises that there is a complex structure of production.

A house, for example, would be a consumer good, in Austrian economics, a good of the lowest order in the capital theory. Numerous goods such as wooden beams, drywall, heavy machines, cement, windows etc must be used in constructing the house.

The goods necessary to produce the wooden beams are hammer, nails and human labour. Without the hammer and nails as necessary goods, there is nothing to produce the wooden beams.

The entrepreneurs meanwhile who involve in long processes roundabout goods would find themselves in very difficult position to stay in competition especially in high living cost and recession environment.

At the other hand, middle and lower income group who wish to demand for these products become less apparent to entrepreneurs, less and less affordable to these groups.



The real reason behind online crackdown

Posted: 03 Jun 2013 01:54 PM PDT

Singapore government is certainly aware that the new regulation will incur the wrath of netizens but that is only a small price to pay than to allow dissent to grow unchecked. 

A new potent political force has emerged which is unprecedented in Singapore history. This force is far more radical, dynamic, reflective of the people's mood, and certainly more threatening to the PAP than all the opposition parties combined.

By Tan Wah Piow, FMT

Lee Hsien Loong in his first national day speech in 2004 as prime minister invoked Chairman Mao's "let the hundred flowers bloom".

He added "… we are going to do is to open up the Speakers' Corner where you can go and make any speech you like and we are going to say, 'Well, if you want to go there and have an exhibition, go ahead."

And now, less than a decade after his speech, not just a hundred flowers have blossomed, cyberspace and Hong Lim Park have merged into one gigantic political force never seen before in Singapore's history. This certainly was not what he anticipated.

If Lee Hsien Loong's 2004 speech was a branding exercise to distinguish himself from his father's knuckle-duster politics, the latest regulatory framework to control news websites signals the end of the liberal pretence.

In essence, independent bloggers carrying news on Singapore can be required to put up a bond of $50,000 if so required by the government when they pass the threshold of readership.

The new regulation would empower the government to impose a fine of S$200,000 or imprisonment of up to 3 years against those who fail to remove offending articles within 24 hours of being ordered to do so.

If there is an example of social control by stealth, this is one. The new framework was presented as an innocuous piece of regulation ostensibly to equalize the playing field between online and offline news.

Of the 10 web-based media notified by the MDA as falling within their criteria for control, ironically nine of the 10 are government-friendly, owned by Singapore Press Holdings, and Media Corp. The exception is Yahoo Sg.

Although the "usual suspects", namely sites such as Temasek Review Emeritus (TRE), The On-Line Citizen (TOC), Public House sg and many others which provide alternative news forum are not immediately named by the MDA as falling within the ambit of their control, they are anxious that these new regulations would eventually threaten their very survival, and financial viability.

They are also concerned that it could curb "fellow Singaporeans' ability to receive diverse news information".

The 21 leading bloggers and websites of Singapore were right when they pointed out in their joint statement that "These new regulations significantly impact Singaporeans' constitutionally protected right to free speech, and they should not be introduced without the most rigorous public debate and discussion."

This latest regulation attracted instant and universal rejection by netizens. But is this simply a stupid decision on the part of a single Minister or someone at the MDA?

Or is it a case that the PAP has not learnt the errors of their way by misjudging the mood of the population?

PAP worried

I believe the answer is "No" to both questions. There are just a thousand days between now and the 2016 general elections.

With the way the public has responded to issues such as AIM, and the Population White Paper, there is no reason for the PAP to feel confident that they could do better in 2016 than in 2011; and the outcome of the by-elections at Punggol East was most worrying for them.

The erosion of public trusts in the PAP, and their elites does not come from any of the opposition parties, or the opposition MPs.

A new potent political force has emerged which is unprecedented in Singapore history. This force is far more radical, dynamic, reflective of the people's mood, and certainly more threatening to the PAP than all the opposition parties combined.

For want of a better expression, I will call this force the Virtual Movement for Democracy in Cyberspace (VMD)

It is a movement without leaders, organisation, or membership. Yet it has a capacity to grow, and is already setting the political demands for change.

The power of this virtual movement lies in its ability to synergise the individual desires for democratic changes in Singapore into real collective political actions.

The energy within this virtual movement comes from the decades of pent up frustrations, as well as the feeling of betrayal of the Singapore cause by the PAP elites who have, over the decades, evolved into a self-serving bureaucratic capitalist class. All of us are now part of this Virtual Movement for Democracy.

It is this VMD which is now setting the political agenda in Singapore. The avalanche of criticisms against AIM, the Population White Paper, and now the control of the Internet are not led by any of the opposition party, but by the uncoordinated collective efforts of individuals in cyberspace.

They include those who write articles, bloggers, those who make comments, those who distribute articles through Facebook and social media.

The VMD would not be a potent political force without a buoyant cyberspace. At the same time, the cyberspace in Singapore would be sterile without the VMD.

It is this symbiotic relationship between the VMD and cyberspace that triggered the need for control, hence the MDA's new regulatory regime.

In the times before 2011, the government could look at those in cyberspace as irritating but tolerable armchair critics. After all, up to the 2011 elections, cyberspace and netizens do not reflect electoral intentions.




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